Quiz on Bonus Shares

What are bonus shares?

• Shares issued at a discount to existing shareholders

• Additional shares issued free of cost to existing shareholders

• Shares that are bought back by the company

• Shares that require payment from shareholders

From where are bonus shares typically issued?

• Borrowed funds

• Fresh capital

• Accumulated profits or free reserves

• Government grants

What happens to the overall value of an investor's holding when bonus shares are issued?

• It decreases

• It remains the same

• It becomes zero

• It increases significantly

What is the typical ratio for issuing bonus shares?

• 1:4 or 4:1

• 1:2 or 2:3

• 1:3 or 3:1

• 1:1 or 2:1

Who is eligible to receive bonus shares?

• Only institutional investors

• Only existing equity shareholders on the record date

• All shareholders regardless of the record date

• Only new investors

How do bonus shares affect Earnings per Share (EPS)?

• EPS decreases

• EPS becomes negative

• EPS remains unchanged

• EPS increases

Are bonus shares taxable when received?

• They are taxed at a higher rate

• No, they are not taxable

• Yes, they are fully taxable

• Only a portion is taxable

What does issuing bonus shares signal about a company?

• Need for cash flow

• Strong financial position and confidence in future earnings

• Impending bankruptcy

• Weak financial position

What must be true about the shares when bonus shares are issued?

• They can be partially paid-up

• They must be fully paid-up

• They can be issued from revaluation reserves

• They must be sold immediately

How do bonus shares affect the ownership percentage of existing shareholders?

• It dilutes their ownership percentage

• It eliminates their ownership percentage

• It increases their ownership percentage

• It does not dilute their ownership percentage